Monday, March 05, 2007

Google is Increasing CAPEX in anticipation of growth which could never come

"4:28PM Google: Morgan Stanley Tech Conference summary (GOOG) 440.95 +2.27 : At the Morgan Stanley Tech conference, CEO says that they are just in the beginning stages in their ability to produce targeted ads. He sees moblie devices as a large driver for these ads, as that market is rapidly expanding. He says that just a small improvement in targeted ads will lead to very large top line growth. CEO notes that last spring, on-line video content begans it's huge growth spurt, and it is still rapidly accelerating. Their goal is to acquire as much licensed video content as possible, then adding advertisements to it. He says their new "Checkout feature" is central to the value of their ads. Regarding their large capex amounts, CEO says they are justified because without adding new servers and data centers, the co wouldn't have the capability to handle its growth and large traffic volumes. They purchase in anticipation of growth, rather than buying to keep up with demand."

With economy going into Recession, busting housing market and screaming consumers it is very right time to invest in "anticipation of Growth", Daily Reach Traffic is falling and YouTube with 15 million revenue in 2006 just eats all broadband, blades and electricity pushing margins further down rising cost on revenues from still the only one darling: Search.

"But even Schmidt conceded that although he felt the online video advertising business is "very large", he added that it is "unclear what the monetization will be like."

2 comments:

Anonymous
said...

I like your analysis of cash flow deterioration. I think you left out the impact of the secondary stock offering. I am curious if your analysis took into consideration the impact it had on cash flow generation in 2005/2006.

You are correct I did not specify impact on cash flow separately from secondary offerings, but it becomes adjusted in my metrics when I compare ratio of MC to FCF, MC has accounted dilution. You can see some analyses on dilution of shareholders value here as well:

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